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In a sourcing trip for fuel filters and oil filters back in Dec 2013, our team visited two factories making the same product. One of them makes the product fully automatically whereas the other manually.We seemed to have entered different worlds on the same day. How different can they be?

At a fully automatic factory, for making one of the core components, the complete process is done by a computer controlled equipment running 24 hours unattended.

Automatic Production Seen at a Sourcing Trip

At the other factory, for making the same component, it is a completely manual process.

Such difference among factories for making the same product has important implications for buyers finding their business partners in China.

Pricing:Pricing at factories using manual process tends to be more competitive given their smaller investment in equipment and their scale of facility, especially in areas with redundant labour resources.

Quality:
Quality by more automatic factories tends to be higher and more stable.

Supply Continuity:
In weighing between pricing and non pricing factories, it is important that buyers should carefully consider how much value they allocate to supply continuity. Automatic factories, who use less labour, is less subject to labour resource fluctuation.

As a product marketer who sources your products from China, some time to time, you may come across product models that may have exclusive distribution opportunities where you can become the only one in your market who sells the unique model.Before the negotiation, you need to ask yourself a few questions.

Are you sure you are dealing with a supplier who has complete control over the model in question?

Compared to other customer who may also be as interested as you are to enter into an exclusivity agreement, what are your competitive edge in distributing? Why should the supplier award the exclusivity agreement to you instead of others?

What is your estimation of sales volume per month/quarter/annum? How long do you think the sales can grow to that level?

How confident are you in the estimation. How profitable it is?

When you negotiate with the supplier about exclusivity, both parties should know the key elements that you should discuss with each other.

Territory
What territory does the exclusivity should cover? You should select the territory in which you have the best ability to sell. It is not wise to cover a large territory because the counter party will require a higher target sales volume and it is more difficult to prove that you have the unique ability to take of the territory that distinguish yourself from others.

ModelsWhat are the models covered by the agreement. Usually, the portfolio of models that are very close to one another should all be included. Similar to the territory consideration, the more models are included the high sales pressure it is.

Purchase Quantity Per Month/Quarter/AnumPropose a purchase quantity attractive enough and at the same time you can handle. Make the supplier believe that if somebody else was telling him of a much higher target, he was bragging and only you are making an honest target, as a marketer who is capable of making the best selling in the territory in question.

Term of ContractExclusivity agreement should have a long term nature, in the order of 3-5 years. However there should be conditions that can terminate it, such as material breach of obligation by either of the party, notice in advance, the distributor not meeting the purchase target etc.

DepositSome suppliers may require deposit to be advanced. If at the end of the period the minimum sales target is not reached, the deposit is taken by the supplier as a penalty.

An exclusivity agreement won’t be entered into very quickly because there are more parameters to considered by both sides than a simple sales transaction. The key consideration is usually based on estimation. There will be back and forth. Agreement will be arrived at when the supplier is convinced that if he doesn’t award an exclusivity agreement to you, no one will be able to does the same good job as you will to promote his product in your territory.

Cosmoprof (http://www.cosmoprof-asia.com/) is one of the most important exhibitions in the cosmetics industry in Asia. It is held in Hong Kong’s convention and exhibition center every November. Our cosmetic packaging sourcing team was visiting the trade show. As usual, there’s new excitement every year. We were able to see new ideas in the packaging industry and develop new relationship from China and Asia’s leading cosmetic packaging suppliers.

Admission Badge, Exhibition Guide and Supplier Catalog

Sample Review – At one trade show, one may compare the subtle quality difference among the suppliers of the same category and find the ones that best matches his own strategy in quality and cost.

One can meet with the worlds’ leading manufacturers and their local competitors.

The border measures taken by the Chinese Customs has been ever increasing. Recently starting in late October, export shipments involving UL, HDMI, Bluetooth, SD marks etc, which are widely used on consumer electronics, were heavily inspected by customs officials. A lot of delays were caused and infringing shipments seized.

Companies importing from China are reminded to review carefully how their products sourced from China are associated with the technology intellectual properties mentioned above and if proper licenses are obtained by the supply chain.

Due diligence following the below steps are recommended.

Identify what proprietary technologies are used with the product

Lookup publication by the owner of the IP (intellectual property) on what claims and requirements they make about the usage of their IP

Check with the China suppliers if they can provide the evidence of proper licensing

Have you ever worked with a Chinese supplier contact who seems to be very unresponsive to your concerns? He might be causing you a lot of headaches but you had to continue working with him. The supplier had good facility and the product you were looking for. It was just very difficult to deal with it because of your contact’s lack of motivation.

He only provided minimal support when you ask specifically what you needed to move on. What was worse was that you had to remind him of the request if you ever wanted to get it done. He never thought of going one single extra mile. He said right to your face that you were the most picky customer he had ever served, when you asked him to redo a very tiny thing. What a nightmare.

This guy should have been fired by his boss but he was not. He was in this position for a longer time than you could ever imagine, were it a company in a comprehensible sense.

Beware, you are dealing with a problematic company. Such sort of behaviors could stem from multiple causes.

You are not the type of customer whose requirement is compatible with the supplier’s usual mode of operations. It causes the supplier contact to feel that it takes more sweats for him to support than the “normal” type of customers he deals with. A supplier who exports to Africa most of the time would scratch their heads when he deals with a customer from more developed world where he has to provide support in certification, labeling, customization, accuracy in wording etc.

The supplier doesn’t provide the right incentives for their sales representatives. This would become a huge problem for the importer in the long run because he just could not get the needed support from an unmotivated supplier contact.

The factory/trading company you are dealing with isn’t well managed. A person without the right authority is assigned to customers. He isn’t able to allocate the resources in his company to support his customer and gradually he loses his patience to care his customers. You don’t ever expect resourceful support from such a supplier.

Nepotism exists in this supplier. You could be dealing with the boss’s nephew who really doesn’t need to worry about his promotion or job security. You could imagine that there’s someone like him in the material procurement department, quality management team and anywhere in this company.

The behavior of an unmotivated supplier contact is a red flag. As an importer sourcing from China, one should take care to look for the causes behind it. Consider switching from the supplier if you feel that the situation tends to continue and there’s just no way to change their way of doing things.

Glass Product Trading Companies

The contacts you may most likely find when sourcing glass packaging from China are trading companies. These companies may have a wide range of models in their catalogs for the buyer to choose from and they make money by reducing cost in the sources and adding their margins in the final prices. In most cases these companies would tell you that they are factories or they have stakes in the factories that they present. However they will never tell you where the factory is and what it is. In fact we have learned that the trading companies rarely have exclusive distributorship. They may actually even buy from different factories instead of a single source. The trading companies control over the factories vary. The larger their trading value is, the tighter relationship they have with the factory.

If one does want to source from these trading companies, it is very important for a buyer to know exactly what the business model is with the trading company he is dealing with. They tend to lie about their relationship with the factory because they don’t want to lose the business opportunity with the buyer if they tell the truth of how they operate. The buyer may want to encourage honesty in such matters and assure that their add-value as a trading company is appreciated.

Individuals

Another type of contacts you may encounter in your sourcing is individual who claims to be representing a factory. In fact he or she may be a broker acting on his own and may mislead you in the whole process. In the end you may end up buying from a factory that is not the one that was “represented”.

Factories

Without professional assistance (or without great luck), the type of party that a foreign buyer is the least likely to reach is a real factory.

The reasons for this issue are:

– There are flooding trading companies and brokers on the internet and they make it very difficult to tell who is who.

– Glass factories are filled with customer orders and they don’t really have much incentive to make marketing efforts to make themselves known to new foreign buyers. Most factories don’t even have websites or domains.

– Very few glass factories have a strong workforce for foreign trading.

Despite the difficulty in developing relationship with real glass factories, the advantages of dealing with them directly are enormous. To name a few:

– Glass factories are capital intensive. Therefore your sales contract with the factory are well guaranteed by the factory’s ability to remedy issues.

– You can exchange AQL standards with the factory so you both parties are on the same standard of quality requirements to avoid disputes.

– You can send your representative to monitor quality control in production time or at the end of the production whereas in other cases you are not permitted with the access to production site.

– Factories have their strength, weakness and specialty in their production capabilities. By having direct relationship with the glass factories you are enabled to select the best fitting one for your project.

Sourcing Spectrum as a sourcing agency have extensive experience in dealing with glass factories and is the best sourcing partner for companies requiring glass packaging for cosmetics, food and beverage.

Many companies rely on using support from sourcing agencies to handle their supplies in China.

For those companies just started to select such a partnership, a very wide range of different sort of agencies are out there for consideration. We hereby offer a score card as a guideline for your assessment.

To have a successful and consistent flow of importing, you would need a full range of support from sourcing to operations. You don’t expect this from individuals who work alone and who are not able to maintain a consistent service standard.

For rendering such full sourcing support in a professional manners, an agency should have its standard processes, well trained and stable staff in the multiple disciplines, experience and know-how on the products your company is dealing with and ideally a host of proprietary tool sets to support the tasks.

In your interview with your candidates, learn from them about these four important components that construct a well functioning agency.

As a sourcing company having operated for many years, we have heard all sorts of quality objectives in colloquial terms. They sound very straight forward and reflect our clients’ fundamental desires to offer the best possible quality to his/her customers.

A very crucial part of the work in sourcing and purchasing is to defining in professional words and numbers what the supplier and the customer should agree upon, assure compliance and deal with breaches.

Before we elaborate on the three components of the quality management for international procurement, it is necessary to stress selecting the right supplier and gaining the access to the production are the prerequisite for all the measures I am going to write about the following texts.

Defining Quality

A good quality definition starts with a well worded and sampled product specification.

Starting with the supplier’s own literature is a practical way of specifying the product because it is something that the supplier sells and the customer accepts. Further work needs to be done to complete the specification. Keep the below guidelines in mind

Include all agreed customization.

Make sure that parameters of materials that are major contribution to production costs are specified in details. Examples are thickness of metals, brand and part number of batteries, part number of plastic resin, contents and weight of fabrics etc.

Correct all errors or vague descriptions avoid confusions. Yes, don’t assume that the information provided by the supplier is perfectly versed. It requires careful screening.

Avoid languages or terms that are specific to the particular supplier. Wherever it is possible, only use industry standard terms.

Attach all final artwork and drawing.

Packaging specification is piece of information that is easily neglected but it shouldn’t be. It is best practice to specify very clearly the corrugated carton specification, how the pallet is stacked, pallet spec etc. Well defined packaging helps you protect your merchandise in transportation and save space.

If possible refer to a sample that is approved.

It is a widely well accepted reality that in a certain batch of produced product, there will be defects of a certain level. “Oh, I don’t need any defect, give me 100% good ones.” is a common request when a client is asked of quality. We will need to agree with the supplier a certain level of AQL, or Acceptable Quality Level. The AQL is the quality level that is the worst tolerable percentage of defects. Usual AQL are 0.65, 1.0, 1.5, 2.5, 4.0, 6.5. For example, if your AQL is 1 but the statistics from a sampling inspection process shows that it is very likely that the population (the whole lot) has more than 1% defects, then the lot should be rejected. In most cases, three categories of defects are defined because different category may have different significance of impact on the acceptability of the product. Example categories are:

Different companies may have different classification on the definition of categories. Experienced buyers or sellers have a very good idea of possible defects of the products. What one in the quality defining process is to list all possible quality defects and assign them to the categories as listed above. You can consider applying 0.65% to the critical defect, 2.5% to the major defect and 4.0% to the minor defects.

Assuring Compliance

Building perception of your seriousness in the whole communication process will help you bring the supplier’s attentions to quality. Make them aware that if quality defects are found to be incompliant, they may get their lots rejected.

You need to understand what quality procedures the suppliers have in house. If you deal with multiple factories you may find that they may have different internal procedures for their on line quality check. We know a glass packaging factory makes a mould stability report of all the cavities on a running product every 20 minutes and they log all the dimensions of the neck, the body etc, whereas another factory only check every 1 hour and they only log “pass”, “fail”. Having such information makes it possible to request the factory to provide with critical information in the process, so you can be reassured that they are not skipping their necessary quality steps because of rush, laziness etc.

Sending an inspector to check in the middle of the production would help a lot. The factory may neglect some key quality characteristics that are very important to you but not to them. Having an inspector that really knows by heart your requirements is very important, as he can help spot such problems, especially in the case where you have multiple suppliers.

Dealing with Noncompliance

The last thing we want to see in an order is quality noncompliance at the final inspection. Do everything you can to avoid it, select the supplier with the best quality attitude and procedure in place, make clear your requirements of quality and make due efforts in the process of product.

If unfortunate enough the quality is incompliant and you have every evidence that it is not your fault, discuss a solution with the supplier. Possible outcomes are cancellation of order, rework, reduction of prices, extra parts. Try your best effort to be fair while keeping yourself from being harmed by the quality issues, by negotiating proper remedies by the supplier. Take note of this breach, and reduce the ranking of this particular supplier in your list unless he proves to you that adequate correctional measures has been taken to avoid the same problem in the future.

People tend to think that they can be assured of a smooth order process and compliance of delivery and quality when there’s a contract agreed upon, which defines the product, the delivery time and the commercial terms. However, they don’t realize that they need more insights of the production plan with the factory to have better control of their orders.

Chinese factories may or may not have a good planning skills. Some factories don’t plan at all. Some of them put the production on for the customer who yells the loudliest. They may give you a “leadtime” out of their experience that your order is going to take 30 days and they put it on the paperwork, without even verifying if they can source the material within the timeframe required to enable the leadtime he promises.

You need to help them understand that as a customer you care about a clear plan which gives everybody a full picture of what should happen at what time to ensure the timely delivery of the order.

The production schedule gives the parties involve a tool to deal with changes along the way. For example, if the packaging production task is dependent on the completion of artworks by the customer, then when the customer delays due to a internal interruption, the block of timeslot of the packaging production on the side of the factory then must move along resulting from this delay. Everyone can understands visually the impact of such event.

A well devised production plan give both parties a chance to assess by what means the production can be speeded up. For example by overlapping tasks or by investing more resources. This benefit is most apparent when a bar chart is used.

The production plan let the factory rethink if they are really resourceful to complete the order as promised with the current work load of his equipment, workforce and raw materials. The agreement between the customer and the factory may be altered so a more reasonable commitment is made. This is very important especially in the case where the customer himself needs to commit to his customer.

What should a production schedule look like?

A production schedule serving the purpose of a tool to manage the whole process of the order delivery should demonstrate at least the below elements.

Tasks that represent the completion of 100% of the overall project. If any task without which the project can not be completed, the product schedule is not adequate.

Start Date and End Date of each task.

The ownership of the tasks, which means who is responsible for the complete of a certain task.

The inter-relationship among the tasks. Such information defines whether two tasks can move along in parallel, whether one task is dependent on another task.

How to develop a good production schedule

Before you set out to forcing your supplier to comply with your need to develop a production schedule, get him convinced and on board that beyond the contractual terms on quality and delivery, the both of you need to attain a mutual understanding of the components of the project and their timed interrelation to manage the process collaboratively.

Providing a concrete live sample or explain in very plain words of what an idea production plan should like like to your factory. You can also ask him to share his format of “planning” he use to manage his production schedule which is very likely to be too simplistic to serve the purpose of mutual management.

Hold a meeting or exchange rich content emails if the situation doesn’t allow a f2f meeting to list all the tasks required to complete the project. Procurement of outsourced materials and components, Production of key parts in House, Logistics are the three first level decomposition that you can break your order up to. Ask your factory what materials and components are out sourced. What parts of the product are manufactured separately, what are the processing steps of the key components. The logistics section is normally pretty standard and straight forward which you can apply a standard task list to although in some cases additional steps may required for example in China some consumer product may require an official inspection by the China Inspection and Quarantined bureau which may takes up to 5 days.

When you are comfortable that the list of tasks are complete, you will need to figure out the time required for them to be completed one after another. Also you need to find out the interrelationship among the tasks so as to reflect them in the tool or format you are using to visualize them.

Resource for Download

Over the next couple of weeks, we will be posting some example production schedule so our reader can download them to use in the projects or learn about how it is done in practice.

This article is brought to you by Sourcing Spectrum, a China based sourcing agency dedicated to help our client find, develop and manage China sources. Visit our website for more information. www.sourcingspectrum.com

As one of the key trade shows for cosmetics industry, China Beauty Expo exhibit finished cosmetic products, materials and packaging. Equally important is the Guangdong Beauty Expo held in March every year in alliance with Cosmos.

This show is annually held in Hong Kong in November. They are holding this year’s fair from Nov 13th to Nov 15th. It is a leading cosmetic fair in Asia and has been around for 17 events. Packaging is one of their sections.

They work with Cosmoprof and annualy have two events in Guangzhou, China. There were quite a lot of options in plastic packaging and a decent list of glass suppliers too. They have held 35 events since their establishment.

Visitors to these trade shows will see manufacturers around the country of varying sizes and competence. From our experience, some exhibitors even have their business license discontinued right before the trade show. Some important leading companies may not even attend these trade shows as they don’t think the trades shows will bring them more business or the visitors are their targeted prospects.

With luck you can meet with good potential sources that meet your selection criteria. It will require your due diligence after the trade shows to follow up with them, verify their information or paying them a visit.

Sourcing Spectrum has been helping our clients in sourcing of cosmetic packaging for over 3 years. We would be very happy to share our advice and insights. Visit our website for more information: http://www.sourcingspectrum.com/.